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Announcement:

Moody's: Sinopec Corp's strong 2016 results support its Aa3 rating

28 Mar 2017

Hong Kong, March 28, 2017 -- Moody's Investors Service says that China Petroleum and Chemical Corporation's (Sinopec Corp) strong 2016 results continue to support its Aa3 issuer rating and also the Aa3 issuer rating of its parent, China Petrochemical Corporation (Sinopec Group).

Moody's points out that Sinopec Corp's and Sinopec Group's issuer ratings reflect their dominant position in China's energy and chemical industries, highly integrated business portfolio, strong liquidity profile and strategic importance to the Chinese government (Aa3 negative).

The outlook on the ratings remains negative.

For 2016, Sinopec Corp reported a 43.6% increase in net profits and around a 17% increase in EBITDA. The company also expects that its earnings in 1Q 2017 will increase by approximately 150% over same period last year.

"The improvement was in line with our expectations," says Chenyi Lu, a Moody's Vice President and Senior Analyst, and also the International Lead Analyst for Sinopec Corp. "The company's results in 2016 show that its highly integrated oil business portfolio is resilient to low oil price environment."

And, the higher operating profits in Sinopec Corp's refining, retail and marketing segments during 2016 offset the falling profits of its upstream E&P businesses, which were negatively impacted by lower oil prices and crude production volumes.

Moreover, Sinopec Corp's strong operating cash flow enabled the company to reduce debt by around RMB58 billion, or around 20% of its total adjusted debt at end-2015. Moody's estimates that Sinopec Corp's adjusted debt/EBITDA will improve to 1.1x at end-2016 from 1.6x at end-2015. Such credit metrics position the company strongly in terms of its current standalone credit strength.

"We expect that Sinopec Corp's performance will remain stable in 2017," says Kai Hu, a Moody's Senior Vice President and the Local Market Analyst for Sinopec Corp. "The recovery of oil and gas prices, and the company's aim to increase the volume of oil & gas production will help improve the profits at its E&P segment."

However, Moody's expects that Sinopec Corp's refining gross margin will likely fall moderately from the current USD9.7/barrel level over the next 2-3 years, due to increased overcapacity and competition in the refining segment.

Sinopec Corp's liquidity position is strong. Its cash and bank deposits increased by around RMB73 billion in 2016, and the company held cash and deposits of around RMB142.5 billion at end-2016. Taking into account Moody's projected operating cash flow in 2017 for Sinopec Corp of around RMB170 billion, the company can cover its planned capex of around RMB110 billion during 2017 and short-term debt of RMB75 billion.

Moody's expects that Sinopec Group's credit profile will also improve, because most of Sinopec Group's businesses are held by Sinopec Corp.

Sinopec Corp's Aa3 rating combines its fundamental credit strength and three notches of uplift, based on Moody's assumption of a high likelihood that Sinopec Corp will receive financial support from Sinopec Group in times of need, and the fact that Sinopec Group will receive in turn a very high level of support from the Chinese government (Aa3 negative) should the need arise, given that Sinopec Group is wholly owned by the government and plays a strategic role in China's crucial oil & gas sector.

The negative outlook on Sinopec Corp and Sinopec Group's ratings mirrors the negative outlook on China's Aa3 sovereign rating.

The principal methodology used in these ratings was Global Integrated Oil & Gas Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

China Petroleum and Chemical Corporation (Sinopec Corp) is 71.32% owned by China Petrochemical Corporation (Sinopec Group). The parent company is China's largest refiner and petrochemicals producer by refined oil products sales, and the country's second-largest oil & gas producer by production volume.

Sinopec Group is fully owned by the government. It is also one of the largest companies by revenue owned by the State-owned Assets Supervision and Administration Commission under the State Council. Globally, it is one of the largest integrated energy and petrochemicals companies, with oil & gas reserves of around 4,130 million boe in 2015, annual production of around 552 million boe in the same period, and a crude oil processing capacity of 299.6 million tons per annum. The company's revenue for 2015 totaled RMB2 trillion.

Sinopec Group's number of proved oil & gas reserves and production includes 30% of the estimated proved reserves of Sinopec International Petroleum Exploration and Production Corporation (SIPC, unrated), due to the capital restructuring of SIPC.

The Local Market analyst for this rating is Kai Hu, +86 (21) 2057 4012.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Chenyi Lu
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

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